How Do REALTORS Get Paid?

For those of us who haven’t bought or sold a home before, you may be wondering how do REALTORS get paid?

When someone is ready to sell their home and decide not to do it themselves, but rather hire a professional, they often will solicit the services of a real estate agent. The REALTOR will, of course, want compensation for his/her services. In 5 steps below, we’ll unwrap the process of how REALTORS get paid:

  1. The home seller hires a listing agent to list their home for sale.
  2. The seller agrees to pay the listing agent a commission – often 4% to 6% of the price the home actually sells for.
  3. In the listing agreement, the seller and listing agent agree to how much the buyer’s agent will receive – often 50% of the total commission.
  4. Once an agent brings a buyer who submits an offer that the seller accepts, the buyer and seller enter into the escrow (closing) process.
  5. After the buyer completes their inspection, funds their loan (if applicable), and completes the closing process, the escrow closes and title changes from the seller to the buyer. At this point, the escrow or title company responsible for fund control distributes the commission to the listing agent and buyer’s agent per the listing agreement. These funds are taken out of the seller’s proceeds.

Up until the very end of the escrow process, the REALTORS have not been paid anything. Only once the escrow closes, do the REALTORS get paid.

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At closing, it’s time for REALTORS to celebrate.

Remember, the seller is paying the listing agent the fee and then the listing agent pays the buyer’s agent. So, it’s really only relevant if you are selling home. If you are buying a home, you actually don’t pay your real estate agent any fee.

Are commissions negotiable?

Yes!

Don’t let an agent tell you that “this is the going rate for this area” or “all agents charge this fee.” That is absolutely false and unethical. You can negotiate many things in a real estate transaction and commission is one of those things.

Most listing agents will push back on lowering commissions. They are trained by their brokers to do so. However, if you can be firm and diligent, you may be able to negotiate a lower commission. Listings are like gold for REALTORS, especially in a seller’s market, so remember that you can negotiate and you may surprise yourself. It’s worth a discussion with your agent as even a 0.5% reduction on a $500,000 home saves you $2,500.

Can I pay a REALTOR on an hourly basis?

Yes!

While this is much less common in the real estate industry, since it’s historically been commission-driven, there are open-minded brokers offering this pay structure. When interviewing agents, ask if they offer hourly fee-based service, rather than a commission-based service.

The upside of an hourly rate fee:

Since the agent’s compensation isn’t driven by the price of the seller’s home, sellers listing more expensive homes will save considerable amounts as commissions are typically a percentage of the sale price. You also can choose to only pay for the services you need. For example, you can manage open houses and showings.

The downside of an hourly rate fee:

If the seller/agent relationship doesn’t work out for whatever reason, a seller still ends up paying the agent for services rendered. Note that the seller must abide by the terms of the listing agreement in a commission-based fee, so if they violate the terms they can be liable to pay the agent. Read your contracts carefully and be sure to ask questions, if in doubt.

How do REALTORS get paid?

So, how do REALTORS get paid? Typically, they get paid by commission and the seller pays the listing agent, who then pays the buyer’s agent. I hope this helps you with your home buying or selling process.

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